Hairline crack shuts-in 400,000 b/d of North Sea production

A "hairline" crack in the Forties Pipeline System (FPS), which in 2017 brought 40% of North Sea oil onshore to Scotland, has helped to push oil prices up, thanks to its operator INEOS deciding to shut down the system for repairs.

The 235mi-long FPS is a major trunkline, bringing ashore some 400,000 b/d and 1.2 Bcf of gas (10% of UK demand) from 85 producing assets in the North Sea (see map below), including the UK's two largest producers - Buzzard (pictured, right), operated by Nexen, and Forties, operated by Apache.

Oil prices have risen above US$65/b for the first time in two years, following the announcement, which could see the pipeline shut in for weeks, reported the Financial Times.

Fiona Legate, Senior Analyst, North Sea Upstream, at Wood Mackenzie, said: “A shutdown of the Forties Pipeline System (FPS), even temporarily, will have wide-reaching implications the UK oil and gas industry. Companies with fields utilising the FPS export route will suffer from reduced cash-flows during the shutdown period.”

As an example, investment analysts GMP FirstEnergy said Premier Oil could see US$10-12 million reduced cash flow a month due to about 13% of its full year expected daily average production, from operated and non-operated assets, being shut-in by the pipeline closure. Oil & Gas UK estimates US$26.68 million a day of production is being lost for operators involved.

INEOS, which acquired the Forties pipeline from BP just six weeks ago, says the crack was found in an onshore section of the pipe in Aberdeenshire last week during a routine inspection.

The pipeline pressure was reduced while a full assessment of the situation was made, but the crack extended, and INEOS decided that a controlled shutdown of the pipeline was the safest way to proceed.

"This will allow for a suitable repair method to be worked up based on the latest inspection data, while reducing the risk of injury to staff and the environment," says the firm.

Image: Fields which feed the FPS system. Image from INEOS.

A repair and oil spill response team was mobilized on Wednesday 6 December, after a very small amount of oil seepage was reported. Measures to contain the seepage were put in place, no oil has been detected entering the environment and the pipe has been continuously monitored, says INEOS. A 300m cordon was set-up and a small number of local residents were placed in temporary accommodation as precautionary measure.

Jonathan Leitch, Research Director, Refining & Product Markets, EMEARC, at Wood Mackenzie, said: “The loss of over 400,000 b/d of crude supply has pushed up North Sea crude prices in absolute terms, but also as a differential to other crude grades. Those refiners that rely on Forties as part of their normal crude diet will have to seek alternative supplies. There will be increased competition to secure these replacement feedstocks and this will reduce the profit margin for producing oil products. The Grangemouth refinery relies on Forties for around half of its crude supply and would be one of the more deeply affected refineries.”